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financial accounting 11th
Questions and Answers of
Financial Accounting 11th
Perform and interpret a horizontal analysis and a vertical analysis of financial statement information.
Perform a basic ratio analysis of a set of financial statements and explain what the ratios mean.
Recognize the risks of investing in stock and explain how to control those risks.
Define the items that the Financial Accounting Standards Board requires a firm to report separately on the income statement. Why is this separation useful?
What criteria must be met for an event to be considered extraordinary? Give an examples of events that would be considered to be extraordinary.
What does it mean to show an item net of tax?
What is horizontal analysis? What is the purpose of this method of analysis?
What is vertical analysis? What is the purpose of this method of analysis?
How are financial ratios used to determine how successfully a company is operating?
Suppose a firm had an extraordinary loss of \(\$ 300,000\). If the firm's tax rate is \(35 \%\), how will the loss be shown in the financial statements?a. On the income statement, below income from
Current assets for Kearney Company are \(\$ 120,000\) and total assets are \(\$ 600,000\). Current liabilities are \(\$ 80,000\) and total liabilities are \(\$ 300,000\). What is the current ratio?a.
Ritchie Company sold some fixed assets for a gain of \(\$ 100,000\). The firm's tax rate is \(25 \%\). How would Ritchie Company report this transaction on its financial statements?a. On the income
Gerard Company reported sales of \(\$ 300,000\) for \(2006, \$ 330,000\) for 2007 , and \(\$ 360,000\) for 2008 . If the company uses 2006 as the base year, what were the percentage increases for
On June 30, Star Radio reported total current assets of \(\$ 45,000\), total assets of \(\$ 200,000\), total current liabilities of \(\$ 42,000\), and total liabilities of \(\$ 80,000\). How much
Talking Puppet Company reported a P/E ratio of 50 on the last day of the fiscal year. If the company reported earnings of \(\$ 2.50\) per share, how much was a share of the company's stock trading
Singleton Company had sales of \(\$ 2,000,000\), cost of sales of \(\$ 1,200,000\), and average inventory of \(\$ 400,000\). What was the company's inventory turnover ratio for the period?a. 3.00b.
Suppose a firm had an inventory turnover ratio of 20 . Suppose the firm considers a year to be 360 days. How many days, on average, does an item remain in the inventory?a. 5.56 daysb. 18 daysc. 20
Suppose a new company is trying to decide whether to use LIFO or FIFO in a period of rising inventory costs. The CFO suggests using LIFO because it will give a higher inventory turnover ratio. Is he
If a firm has \(\$ 100,000\) debt and \(\$ 100,000\) equity, thena. The return on equity ratio is 1 .b. The debt-to-equity ratio is 1 .c. The return on assets ratio is 0.5 .d. The firm has too much
Discontinued operations. (LO 1)In 2006, Earthscope Company decided to sell its satellite sales division, even though the division had been profitable during the year. During 2006, the satellite
Discontinued operations. (LO 1)In 2007, Office Products decided to sell its furniture division because it had been losing money for several years. During 2007 , the furniture division lost \(\$
Discontinued operations. (LO 1)After the terrorist attacks on the World Trade Center in 2001, Congress passed a law requiring new security devices in airports. One airport security firm had to get
Extraordinary item. (LO 1)Sew and Save Company suffered an extraordinary loss of \(\$ 30,000\) last year. The related tax savings amounted to \(\$ 5,600\). How would this tax savings be reported on
Horizontal analysis. (LO 2)Olin Copy Corporation reported the following amounts on its 2007 comparative income statement.Perform a horizontal analysis of revenues and cost of sales in both dollar
Horizontal analysis. (LO 2)Use the following information about the capital expenditures of Andes Company to perform a horizontal analysis, with 2004 as the base year. What information does this
Vertical analysis. ( \(L O 2\) )Bessie's Quilting Company reported the following amounts on its balance sheet at December 31,2007 .Perform a vertical analysis of the assets of Bessie's Quilting
Vertical analysis. (LO 2)Perform a vertical analysis on the following income statement, with sales as the base amount. What other information would you need to make this analysis meaningful? Sales
Ratio analysis. (LO 2)Fireworks reported current assets of \(\$ 720,000\) and a current ratio of 1.2. What were current liabilities? What was working capital?
Ratio analysis. (LO 3)A 5-year comparative analysis of Low Light Company's current ratio and quick ratio follows.a. What has been happening to the liquidity of Low Light Company over the 5 years
Ratio analysis. (LO 3)A company's debt-to-equity ratio has been increasing for the past 4 years. Give at least two company actions that might have caused this increase.
Ratio analysis. (LO 3)The following is a 5-year comparative analysis of Accent Company's return on assets and return on equity.a. What does this analysis tell you about the overall profitability of
Ratio analysis. (LO 3)Earnings for Archibold Company have been fairly constant over the past 6 months, but the \(\mathrm{P} / \mathrm{E}\) ratio has been climbing steadily. How do you account for
Risk and control. (LO 4)Suppose you are the financial advisor to AHA Company, a local software development company. The CFO suggests the firm invest all of its extra cash in technology stocks. He
Appendix 10A: Comprehensive income.Give an example of a gain or loss that would be excluded from the income statement and shown directly on the balance sheet as part of accumulated other
Convey Company had some extra cash and purchased the stock of various companies with the objective of making a profit in the short run. The cost of Convey's portfolio was \(\$ 79,450\) at December
Discontinued operations. (LO 1)Use the following information to construct a partial income statement beginning with income from continuing operations. Income from continuing operations $230,000 Loss
Horizontal analysis. (LO 2)Jones Furniture reported the following amounts for its sales during the past 5 years. Using 2004 as the base year, perform a horizontal analysis. What information does the
Vertical analysis. ( \(L O 2\) )Use the income statement from Color Copy to perform a vertical analysis with sales as the base. Color Copy Inc. Income Statement For the year ended September 30, 2007
Current ratio and working capital. (LO 3)Calculate the current ratio and the amount of working capital for Albert's Hotels for the years given in the following comparative balance sheets. Although 2
Debt-to-equity ratio. ( \(\mathrm{LO} 3\) )Use the balance sheets from Albert's Hotels in E10-5A to compute the debt-to-equity ratio for 2008 and 2007. Suppose you calculated a debt ratio using debt
Ratio analysis. (LO 3)Zap Electronics reported the following for the fiscal years ended January 31, 2007, and January \(31,2006\).Assume all sales are on credit and the firm has no preferred stock
Ratio analysis. (LO 3)Evans Family Grocers reported the following for the two most recent fiscal years.c. Accounts receivable turnover ratiod. Inventory turnover ratioe. Return on assetsf. Return on
Ratio analysis. (LO 3)Furniture Showcase reported the following for its fiscal year ended June 30, 2008.At the beginning of the year, the company had 50,000 shares of common stock outstanding. At the
Horizontal analysis. (LO 2)Use the statement of earnings for Talbots to perform a horizontal analysis for each item reported for the year from January 29,2005 , to January 28,2006 . What does your
Vertical analysis. (LO 2)Use the statement of earnings for Talbots to perform a vertical analysis for each item reported for the last two fiscal years using net sales as the base. What does your
Liquidity ratios. (LO 3)Use the financial statements for Talbots to calculate the following liquidity ratios for FYE January 28,2006 . What information does this provide about the firm's liquidity?a.
Solvency and profitability ratios. (LO 3)Use the financial statements for Talbots to calculate the following solvency and profitability ratios for FYE January 28,2006 . What information does this
Risk and control. (LO 4)Often a firm will contribute its own shares of stock to its pension fund rather than cash. What problem could this cause? How could it be avoided? Have you heard of any firm
Appendix 10B: Investments.During 2007, Nike has invested \(\$ 200,000\) of extra cash in securities. Of the total amount invested, \(\$ 75,000\) was invested in bonds that Nike plans to hold until
How much is net cash from financing activities?a. \(\$ 7,000\)b. \(\$ 25,000\)c. \(\$ 31,600\)d. \(\$ 32,000\)
How much is net cash from investing activities?a. \(\$(20,000)\)b. \(\$(25,000)\)c. \(\$ 25,000\)d. \(\$ 32,000\)
How much is net cash from operating activities?a. \(\$ 26,500\)b. \(\$(3,500)\)c. \(\$ 16,500\)d. \(\$ 16,900\)
Cash from the sale of treasury stocka. Would not be included in the statement of cash flowsb. Would be classified as a contra-equity cash flowc. Would be classified as an investing cash flowd. Would
The cash proceeds fron the sale of a building will bea. The cost of the buildingb. The book value of the buildingc. The book value plus any gain or minus any lossd. Shown on the financing portion of
If a firm has net investing cash inflows of \(\$ 5,000\), net financing cash inflows of \(\$ 24,000\), and a net increase in cash for the year of \(\$ 12,000\), how much is net cash from operating
Depreciation for the year was \(\$ 50,000\) and net income was \(\$ 139,500\). If the company used cash for all transactions except those related to long-term assets, how much was net cash from
How much cash did Frances Company collect from customers during 2006 ?a. \(\$ 400,000\)b. \(\$ 412,000\)c. \(\$ 406,000\)d. \(\$ 388,000\)
How much cash did Frances Company pay its vendors during 2006 ?a. \(\$ 173,000\)b. \(\$ 165,000\)c. \(\$ 167,000\)d. \(\$ 163,000\)
How much cash did Frances Company pay for insurance during the year?a. \(\$ 20,000\)b. \(\$ 24,000\)c. \(\$ 16,000\)d. \(\$ 48,000\)
Identify cash flows. (LO 1)Given the following cash transactions, classify each as a cash flow from: (a) operating activities, (b) investing activities, or (c) financing activities.a. Payment to
Identify cash flows. (LO 1)Given the following cash transactions, classify each as a cash flow from: (a) operating activities, (b) investing activities, or (c) financing activities.a. Principal
Calculate and identify cash flows. (LO 1, 3, 4)College Television Company had supplies on its balance sheet at December 31, 2006, of \(\$ 20,000\). The income statement for 2007 showed supplies
Calculate and identify cash flows. (LO 1, 3, 4)Col Corporation reported credit sales of \(\$ 150,000\) for 2006. Col's accounts receivable from sales were \(\$ 25,000\) at the beginning of 2006 and
Calculate and identify cash flows. (LO 6)A building cost \(\$ 55,000\) and had accumulated depreciation of \(\$ 15,000\) when it was sold for a gain of \(\$ 5,000\). It was a cash sale. How would the
Calculate and identify cash flows. (LO 1, 3, 4)Sales for 2008 were \(\$ 50,000\); cost of goods sold was \(\$ 35,000\). If accounts receivable increased by \(\$ 2,000\), inventory decreased by \(\$
Calculate and identify cash flow. (LO 1, 3, 4)During 2007, Cameron Company had \(\$ 300,000\) in cash sales and \(\$ 3,500,000\) in credit sales. The accounts receivable balances were \(\$ 450,000\)
Evaluate adjustments to net income using the indirect method. (LO 5)The income statement for Lilly's Company for the year ended June 30, 2008, showed sales of \(\$ 50,000\). During the year, the
Evaluate adjustments to net income using the indirect method. (LO 5)The income statement for Sharp Inc. for the month of May showed insurance expense of \(\$ 250\). The beginning and ending balance
Evaluate adjustments to net income using the indirect method. (LO 5)During 2007, Mail Direct Inc. incurred salary expense of \(\$ 67,500\), as shown on the income statement. The January 1, 2007,
Evaluate adjustments to net income using the indirect method. (LO 5)Havelen's Road Paving Company had depreciation expense of \(\$ 43,000\) on the income statement for the year. How would this
Calculate and identify cash flows using the indirect method. (LO 5)Beta Company spent \(\$ 40,000\) for a new delivery truck during the year. Depreciation expense of \(\$ 2,000\) related to the truck
Evaluate adjustments to net income under the indirect method. (LO 5)B\&W Inc. reported net income of \(\$ 1.2\) million in 2006. Depreciation for the year was \(\$ 120,000\), accounts receivable
Evaluate adjustments to net income under the indirect method. ( \(L O \quad 1,5)\)In 2007, Jewels Company had net income of \(\$ 350,000\). The depreciation on plant assets during 2007 was \(\$
Evaluate adjustments to net income under the indirect method. (LO 5)The comparative balance sheets for JayCee Company showed the following changes in current asset accounts: accounts receivable
Calculate and identify cash flows. (LO 5)C\&S Supply Inc. had \(\$ 125,000\) of retained earnings at the beginning of the year and a balance of \(\$ 150,000\) at the end of the year. Net income for
Use a statement of cash flows for decision making. (LO 7, 8)If you were interested in investing in a company, what item(s) on the statement of cash flows would be of most interest to you? Why?
Identify risks and controls. (LO 8)If you were an investor, why would you look at the statement of cash flows? Which amounts would provide information about the risk to an investor?
Identify risks and controls. (LO 8)If you believe there is a risk that a firm is not taking advantage of long-term investment opportunities, how would the statement of cash flows help you confirm or
Identify cash flows. (LO 1)For each of the following items, tell whether it is a cash inflow or cash outflow and the section of the statement of cash flows in which the item would appear. (Assume the
Identify cash flows. (LO 1, 4, 6)For each transaction, indicate the amount of the cash flow, indicate whether each results in an inflow or outflow of cash, and give the section of the statement in
Prepare cash from operating activities section of statement of cash flows using the direct method. (LO 4)Use the income statement for Clark Corporation for past year and the information from the
Prepare cash from operating activities section of statement of cash flows using the indirect method. (LO 5) Use the information from E9-3A to prepare the cash from operating activities section of the
Calculate change in cash. (LO 1, 4, 6) Given the following information, calculate the change in cash for the year. Cash received from sale of equipment Cash paid for salaries Depreciation expense for
Calculate cash from operating activities. (LO 3, 4) Use the information given for Evans Company to calculatea. Cash paid for salariesb. Cash paid for income taxesc. Cash paid for inventory itemsd.
Prepare the cash from operating activities section of the statement of cash flows and determine the method used. ( \(L O 2,4,6\) )Use the information from E9-6A to calculate the cash flow from
Calculate cash flows from investing and financing activities. (LO 1, 6) The following events occurred at Gadgets Inc. during 2006.Compute Gadgets' net cash flow from (1) investing activities and from
Calculate cash from operating activities using the direct method. (LO 1,4 ) The following information applies to Computer Company.1. Accounts receivable started the year with a balance of \(\$
Calculate cash from operating activities using the indirect method. (LO 5, 6)Brass Company reported net income of \(\$ 290,000\) for 2007 . The company also reported depreciation expense of \(\$
Calculate cash from operating activities using the indirect method. (LO 5)The following information was taken from Tram Inc.'s balance sheets at December 31, 2005 and 2006. Prepare the net cash
Calculate cash from operating activities using the direct method. (LO 4)Compton Company completed its first year of operations on December 31, 2006. The firm's income statement for the year showed
Calculate cash from operating activities using the direct method. (LO 1, 4) During the fiscal year ended September 30, 2006, Napster Company engaged in the following transactions. Using the relevant
Prepare the statement of cash flows using the indirect method. (LO 5, 6) Use the following information for Just Nuts Company to prepare a statement of cash flows using the indirect method.Additional
Prepare the statement of cash flows using the direct method. \((L O 4,6)\)Using the information from E9-14A, prepare a statement of cash flows for Just Nuts Company using the direct method.
Analyze a statement of cash flows. (LO 7)The following information has been taken from the most recent statement of cash flows of Expansion Company:Net cash used by operating activities Net cash
Compute free cash flow. ( \(L O 7\) )Use the Pier 1 Imports Inc. consolidated statement of cash flows to compute the company's free cash flow for the 3 years shown. What does the trend in free cash
Identify risks and controls. (LO 8)Using the Pier 1 statement of cash flows shown in E9-17A, determine whether or not the firm appears to be taking advantage of new investment opportunities. Is the
Identify cash flows. ( \(L O\) I)For each of the following items, tell whether it is a cash inflow or cash outflow and the section of the statement of cash flows in which the item would appear.
Identify cash flows. ( \(L O 1,4\) )For each transaction, indicate the amount of the cash flow, indicate whether each results in an inflow or outflow of cash, and give the section of the statement in
Prepare cash from operating activities using the direct method. (LO 4)Use the income statement for Kristen Harrison's Cosmetics Inc. for the past year and the information from the comparative balance
Prepare cash from operating activities using the indirect method. (LO 5)Use the information from E9-3B to prepare the cash from operating activities section of the statement of cash flows using the
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